A Sezzle logo is shown in a person's online shopping cart on a laptop in Vernon, B.C. on Wednesday, November 18, 2020. Canadians shopping for Sephora makeup, Herschel Supply Co. backpacks and Lush beauty products might have recently noticed a new option during the checkout process: buy now, pay later. The offers come from fintechs like PayBright, Afterpay, Sezzle, Klarna, QuadPay and Affirm. THE CANADIAN PRESS/Jesse Johnston

Be careful with buy now, pay later deals for nominal purchases: experts

Be careful with buy now, pay later deals for nominal purchases: experts

TORONTO — Online shoppers may have recently noticed new options on the checkout pages of their favourite retailers: buy now, pay later.

In addition to standard payment methods like credit cards and PayPal, companies such as Sephora makeup, Herschel Supply Co. backpacks and Lush beauty products offer new options from fintechs like PayBright, Afterpay, Sezzle, Klarna, QuadPay and Affirm.

These new services focus on nominal purchases and allow consumers to pay in instalments, sometimes interest-free — which can be enticing for Canadians who are low on cash during the COVID-19 pandemic.

However the options are not without their pitfalls.

After a qualifying process, the services allow shoppers to pay for their purchases in small increments spread out over weeks or months and sometimes offer access to a tracking portal where they can adjust their payments if unforeseen circumstances come up.

Some, like Afterpay, make most of their revenue from retailers and don’t charge fees or interest to shoppers, but experts advise against them because they often encourage consumers to spend beyond their means.

“The thing that can really get you in trouble is thinking of it as ‘oh $20 here, $60 there is not a big deal,’ but those little purchases can add up really quick,” said Julia Faletski, a Vancouver-based financial adviser at CI Direct Investing.

“You just don’t want to get yourself in this situation where that leather jacket is the thing that sinks your finances.”

However, despite the danger of getting too deep in debt, the services do have their upsides, she said.

For example, if you agree to zero per cent interest rates or rates that are lower than your credit card and can pay something off speedily, then the services can work for you.

Laura Nadler, the chief financial officer of AfterPay U.S., said her company’s service is ideal for consumers who want to stagger payments to line up with a budget or match when a bi-weekly paycheck comes in.

AfterPay’s offering, she said, is also good for people who don’t want to take out a traditional loan or pay upfront fees or interest.

When deciding whether to use a pay now, buy later service for a nominal purchase, think about it in steps, said Chantel Chapman,a Vancouver-based financial literacy consultant behind the What The Finances education business.

The first step is to ask yourself why there is so much urgency to purchase something. A lot of people spend to avoid emotions like boredom, pain or feelings of inadequacy, which can be handled in more healthy and alternative ways, she said.

The second step is to think about why you’re considering a plan.

“You may feel a sense of shame for spending that much money on yourself and it feels less painful to spread it out over four months, so that’s something to look out for,’” said Chapman.

The last step is to think about what you’re getting yourself into.

Buy now, pay later plans can be difficult to understand and carry a mental cost because you’re suddenly adding an extra and recurring payment to your monthly budgeting, she said.

The plans can become a bad deal if you’ve overextended yourself by too much, have no prospect of being able to afford whatever you’re buying or haven’t looked closely at the terms.

“Make sure that you have a really clear idea of what you owe and…make sure that you abide by the payment schedule because if you fall behind, this is where the penalties really become significant,” said Faletski.

AfterPay’s Nadler said more than 90 per cent of its customers pay on time and those who don’t are prevented from purchasing more items.

However, Faletski warned that users of buy now, pay later services who aren’t careful can rapidly see their credit score take a hit and end up with even more debt to pay off.

If you end up in that situation, Chapman said it’s often time to turn to credit counselling or professionals to help put together a plan for recovery.

The bottom line, she said, is that you should think long and hard when mulling buy now, pay later plans and don’t ignore the red flags.

“If you’re in a situation where you only have this small amount of money…or if you don’t even have any money to pay for this stuff…you should not.be using these payment plans.”

This report by The Canadian Press was first published Nov.19.

Tara Deschamps, The Canadian Press

Business

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

COVID-19. (Image courtesy CDC)
Red Deer hits 304 active COVID-19 cases

Six new deaths were reported in Alberta

Clearview Public Schools had slight enrolment increase in September. (Image from Facebook)
Positive COVID-19 test reported at Stettler high school

An individual who was at Wm. E. Hay Stettler Secondary Campus has… Continue reading

(Advocate file photo).
Woman ‘beyond frustrated’ by Red Deer College program’s volunteer requirements

Teddie Briggs says she was “beyond frustrated” after learning Red Deer College’s… Continue reading

Hugh Danielson and Brayden Watts, of Red Deer are trying to spread the word about a new innovation for wheelchairs that they think will be especially helpful during the COVID-19 pandemic. (Photo courtesy of Brayden Watts)
Red Deer company lands exclusive patent rights to wheelchair extension

By some small miracle, Hugh Danielson and Brayden Watts stumbled upon a… Continue reading

A nurse gets a swab ready at a temporary COVID-19 test clinic in Montreal, on Friday, May 15, 2020. Health Canada has reversed course on home test kits for COVID-19, saying it will now review applications for such devices. THE CANADIAN PRESS/Paul Chiasson
Employee at Bethany CollegeSide in Red Deer tests positive for COVID-19

An employee at a Red Deer continuing care facility has tested positive… Continue reading

Teresa Kutynec, Red Deer Christmas Bureau president, dressed up as Mrs. Claus during the Charity Checkstop on Saturday. The event supports four nonprofit organizations: the Christmas Bureau, Mothers Against Drunk Driving, Red Deer Food Bank and Women’s Outreach Centre. (Photo by Sean McIntosh/Advocate staff)
WATCH: Charity Checkstop raises money for nonprofit organizations

Red Deerians supported four local nonprofit organizations without even having to leave… Continue reading

The commemorative plaque is seen on the outside wall at the Polytechnique in Montreal, on Friday, Dec. 4, 2020. Sunday will mark the 31st anniversary of the murder of 14 women in an antifeminist attack at Ecole Polytechnique on December 6, 1989. THE CANADIAN PRESS/Paul Chiasson
Scaled-back, virtual ceremonies to mark 31st anniversary of Polytechnique killings

MONTREAL, France — The anniversary of the attack that cut short the… Continue reading

A man wears a face mask as he skateboards along a street in Montreal, Saturday, Dec. 5, 2020, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
COVID-19 cases hit new records as Tam urges perseverance, promises vaccine on the way

Canada’s top doctor urged cautious optimism — and a healthy dose of… Continue reading

Asymptomatic testing will now be available for "priority groups" who are most likely to spread the COVID-19 virus to vulnerable or at-risk populations. File photo by THE CANADIAN PRESS
Manitoba judge rules church can’t hold drive-in services forbidden by health order

WINNIPEG — A Manitoba judge has rejected a church’s request to hold… Continue reading

Homeowners Cora and Alec Dion pose in the basement of their home in Fort McMurray, Alta., on May 8, 2020. More than seven months ago, the Dions were forced to flee Fort McMurray for the second time in four years as a spring flood threatened their home. THE CANADIAN PRESS/Greg Halinda
Fort McMurray residents still cleaning, considering options after spring flooding

‘It’s worse than just having water, because it’s ice mixed in with the water’

Public Services and Procurement Minister Anita Anand responds to a question during a news conference in Ottawa, Monday, Oct. 26, 2020. Anand says as soon as she knows when the first dose of a COVID-19 vaccine will arrive on Canadian soil, she will share that information with the country. THE CANADIAN PRESS/Adrian Wyld
Negotiating contracts for vaccines in development needed flexibility: Anand

Health Canada officials are days, maybe even hours, away from approving the COVID-19 vaccine

Speaker of the House of Commons Anthony Rota rises in the House of Commons, Wednesday, May 13, 2020 in Ottawa. nbsp; THE CANADIAN PRESS/Adrian Wyld
Speaker Rota reflects on first year presiding over unprecedented virtual Parliament

‘It’s not what I signed up for but it is what it is’

In this file photo, a lotto Max ticket is shown in Toronto on Monday Feb. 26, 2018. (By THE CANADIAN PRESS)
No winning ticket for Friday night’s $17 million Lotto Max draw

TORONTO — No winning ticket was sold for the $17 million jackpot… Continue reading

Harley Hay
Hay’s Daze: Not used to seeing giraffe with a mask

My bad. Now there’s an expression that used to stick in my… Continue reading

Most Read